The Race In Tablets Heats Up

By NICK WINGFIELD and NICK BILTON

Published: July 16, 2012

The tech companies are at it again -- trying to catch the blockbuster iPad in a race to win the tablet market.

Google on Friday began shipping its Nexus 7, which is smaller and less expensive than Apple's iPad, and is meant to compete with both that device and Amazon's Kindle Fire.

This summer, Microsoft announced that it would create its own tablet, Surface. And Amazon is working on a new version of the Kindle Fire, with a larger display, that could compete more directly with the iPad, according to a developer briefed on Amazon's plans who did not want to be identified talking about unannounced products. Analysts also believe that Amazon is updating the Kindle Fire. Drew Herdener, an Amazon spokesman, declined to comment.

But Apple is hardly about to cede ground.

The company is developing a new tablet with a 7.85-inch screen that is likely to sell for significantly less than the latest $499 iPad, with its 9.7-inch display, according to several people with knowledge of the project who declined to be named discussing confidential plans. The product is expected to be announced this year.

Natalie Kerris, an Apple spokeswoman, declined to comment.

Apple's plan for a tablet with a smaller screen is part of a textbook business strategy: to lure customers who want different sizes of tablets into the iPad product family, say analysts and technology industry executives.

The strategy would most likely include devices with different prices and functions tailored to various uses, they say. The idea is to help Apple solidify its dominance in the tablet market even as the richest companies in the tech business are trying to figure out how to outflank Apple.

Leslie Grandy, a former Apple manager who is now a consultant and an adviser to start-up companies, says a smaller iPad could be especially appealing to people who do not now carry their iPads with them because they are too large and heavy.

While a seven-inch device is too big for pants pockets, Ms. Grandy said, it is a good size for women's purses.

''I really do feel like this is the sweet spot for them,'' Ms. Grandy said.

The company used a similar strategy throughout the 2000s to fend off rivals that were determined to kill the iPod, Apple's digital music player, with their own products.

The company fiddled with the design of the product so much that it ended up running the gamut from the $49 iPod shuffle, a screen-free iPod so small it could be clipped to the collar of a runner's shirt, to the $249 iPod classic, a heavier device with space for 40,000 songs.

The strategy was a great success, helping Apple to create a near monopoly in the MP3 music player business. The company held 80 percent of the United States market for the first five months of the year, according to the NPD Group.

Apple's share of the tablet market is only somewhat less impressive: 60 to 70 percent of the market, depending on the company doing the estimating. As many people in the tech industry have pointed out, the ''tablet market'' is really a misnomer. For the time being, it is an iPad market.

The company's iPod strategy contrasts with how it handled competition in the phone market; smartphones running Google's Android operating system have elbowed their way past the iPhone in market share.

The most credible challenge right now to the iPad appears to be Google's Nexus 7, an Android device that costs $199 and is of the company's own design. With a seven-inch screen, the Nexus 7 has already won enthusiastic reviews for its software and battery life -- and, of course, its size and price.

In addition to creating the Surface, which could go on sale as early as the fall, Microsoft has also agreed to invest up to $605 million in Barnes & Noble's Nook business. The move helps bolster another Apple rival in the tablet market, one that could end up using Microsoft's software for its products.

A decision to make a smaller iPad would be a clear break with Apple's past. During a conference call with Wall Street analysts in 2010, not long after the original iPad came out, Steven P. Jobs, Apple's chief executive, memorably dismissed the seven-inch tablets then entering the market, saying they should be sold with sandpaper so that users could whittle their fingertips down to fine points.

''There are clear limits of how close you can physically place elements on a touch screen before users cannot reliably tap, flick or pinch them,'' Mr. Jobs said. ''This is one of the key reasons we think the 10-inch screen size is the minimum size required to create great tablet apps.''

But the first tablet prototype Apple began developing in the mid-2000s had a seven-inch screen, said a former engineer at the company who helped build the smaller prototype and declined to be named to avoid upsetting people at the company today.

Mr. Jobs thought the device was too small and wondered aloud what it was good for ''besides surfing the Web in the bathroom,'' this person said.

Mr. Jobs, who died last year, was famous for both 180-degree reversals of opinion and deliberate diversions intended to keep competitors away from a juicy opportunity. His aversion to smaller tablets could have been such a diversion. Or, had he lived, Mr. Jobs might have simply changed his mind about the product.

Either way, Apple has warmed to the idea of a seven-inch device. The company has sought to further attract customers to the iPad by continuing to sell the second-generation iPad at $399, or $100 less than the latest version with its high-resolution screen, known as a Retina display.

Horace Dediu, a blogger and independent analyst, thinks Apple is interested in a seven-inch tablet because lighter, smaller devices are better suited, in many situations, to media, especially books. For activities like typing e-mail, Mr. Dediu said, the larger iPad would probably have an edge.

To emphasize the new device's media-playing functions, Mr. Dediu suggested, Apple could even position it as a next-generation version of the iPod Touch, rather than as an ''iPad mini,'' as bloggers have called the product.

''What I think is happening in the post-PC world is we're breaking the jobs PCs were hired to do into device-centric solutions,'' he said. ''This is why it's not enough to look at tablets as one category.''

Stephen Baker, an analyst at NPD, said a smaller tablet could help Apple hold on to a majority of the tablet market by widening the audience for the device.

One factor in Apple's favor is that most tablets' customers are not buying the devices through wireless carriers. The aggressive efforts of carriers to sell Android smartphones have been critical for the sales of those products, analysts say.

Even if the company does lose some share of the business, Apple has still demonstrated a knack for holding onto a disproportionate piece of the profits of markets like that for smartphones.

PHOTOS: In June, Steven Sinofsky, president of Microsoft's Windows and Windows Live division, introduced Surface in Los Angeles. (PHOTOGRAPH BY DAVID McNEW/REUTERS); Hugo Barra, a Google product management director, with a Nexus 7 in San Francisco last month. (PHOTOGRAPH BY JIM WILSON/THE NEW YORK TIMES) (B6)
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